The New Sublease Act is part of the "Act on Proper Administration of Leased Residential Buildings" that came into effect on December 15, 2020. It was enacted to prevent the frequent disputes arising between landlords and sublease companies. This article provides a detailed explanation of the basics of sublease contracts, the changes brought by the New Sublease Act, and the key points landlords should be aware of.
What Is a Sublease Contract?
A sublease contract is an arrangement in which a sublease company bulk-leases an apartment from a landlord and then subleases it to tenants. Since rental income is guaranteed regardless of vacancies, it offers the advantage of stable revenue. However, the rent guarantee ratio is typically around 80–90%, and there are important considerations such as exemption periods and rent reviews.
Why Was the New Sublease Act Enacted?
The primary reason was the unrelenting stream of disputes between landlords and sublease companies. Surveys by the Ministry of Land, Infrastructure, Transport and Tourism reported numerous cases of complaints such as "the terms were different from what I was told" and "unilateral demands to change conditions." The 2018 "Kabocha no Basha (Cinderella Coach) Incident," in which the collapse of a sublease company drove many property owners into personal bankruptcy, escalated into a serious social problem.
What Changed Under the New Sublease Act?
Prohibition of Misleading Advertisements
Advertisements and representations that could cause a false impression of more favorable terms than reality are now prohibited. Accurate disclosure is required regarding rent amounts, payment conditions, methods of maintenance and management, and contract termination terms.
Prohibition of Unfair Solicitation
It is now prohibited to intentionally withhold important information that influences a contracting decision, or to provide false information. Accurate communication of rent reduction risks and maintenance cost obligations is required.
Mandatory Disclosure of Important Matters
Prior to signing a contract, written documentation and explanation must be provided regarding the possibility of rent reduction, the possibility of mid-term cancellation, and the scope and cost of management services.
Penalties for Violations
Violations may result in imprisonment of up to 6 months or a fine of up to 500,000 yen, as well as administrative sanctions such as business suspension orders.
Key Points Landlords Should Be Aware Of
- Thoroughly understand the contract terms: Verify every detail, including the possibility of rent reduction, exemption periods, and repair cost obligations
- Do not leave everything to the contractor: Understand the sublease structure and its risks yourself
- Understand what "rent guarantee" actually means: "Rent guarantee" does not mean the same rent amount is guaranteed indefinitely into the future
- Choose a company carefully: Select a company with stable management and the ability to make proposals based on objective data
How to Avoid Disputes
When it comes to sublease contracts, carefully reviewing the contract terms is of utmost importance. Do not judge solely by the impression of the phrase "rent guarantee" — verify whether there are rent revision clauses and review the specifics of repair cost obligations. It is also important to compare multiple sublease companies and assess the validity of their business plans.
Frequently Asked Questions (FAQ)
Q. When did the New Sublease Act take effect?
A. It came into effect on December 15, 2020.
Q. What is the typical rent guarantee ratio for sublease contracts?
A. Generally, it is around 80–90%. If the ratio is lower, be sure to ask why.
Q. Can the contract be terminated mid-term?
A. It depends on the contract terms, but under the Land and Building Lease Act, the lessee (sublease company) is afforded strong protections, meaning mid-term cancellation by the landlord may be difficult.
